SEMINAR ON TYPOLOGY OF GOODS AND PRODUCTION ECONOMICS

1. SEMINAR ON TYPOLOGY OF GOODS AND PRODUCTION ECONOMICS

2. TYPOLOGY OF GOODS • GOOD: • Anything external to man either material or immaterial that satisfies a human desire. • There is no legal or moral ethical connotation in its technical use . • A dangerous and harmful drug might satisfy a human desire, so may fresh air . • This technical use of the term in no way justifies the illegal or condones the immoral or unethical. • Goods are generally divided into Free goods and Economic goods . • FREE GOOD: • Anything external to man is inherently useful and which is in such bountiful supply • that is much of it as desired can be had without conscious effort . • The term is used in contrast to the economic good. • Fresh air, climate and sunshine are examples of free goods. • ECONOMIC GOOD: • Anything external to man that is inherently useful, appropriate and relatively scarce. • The term is used in contradiction to free good. • Economic goods may be either material or immaterial. • Service of a lawyer or a teacher are considered economic good. • Economic goods are of many types -

3. 1. CAPITAL GOOD- • Capital goods are created by man and are for, all practical purposes, unlimited in quantity whereas land is an original gift of nature and is limited in quantity. • Other authorities regard land as a particular kind of capital good, terming it natural good thereby distinguishing it from other capital goods which they designate as artificial capital. • Capital good are classified according to their durability as fixed capital goods and circulating capital goods and again according to their degree of specialization as free capital goods and specialized capital goods. • 2. CONSUMER GOOD- • An economic good which is used directly for the satisfaction of human desires. • The term is used in contradiction to capital good. For e.g.: a car used by a consumer for pleasure is consumer good, the same car used by a firm for economic purpose like delivering goods is an economic good. • They are classified as (1) durable (2) non durable (3) semi durable • 3. IMPROVED GOOD- • An economic good (commodity) usually imported, which is eventually processed or assembled in some other product and hence increase in value. • 4. PUBLIC GOOD- • As applied to economic goods, a commodity or a service supplied gratituaously to individuals by the govt. Public fountains, recreation parks, museums etc are examples. • 5. REPRESENTATIVE GOOD- • This is a kind of economic good which is applied to a document that is evidence of the ownership or an interest in the ownership of wealth for e.g.: a stock certificate, a bond or a mortgage.

4. PRODUCTION ECONOMICS • MEANING OF PRODUCTION: • Production is defined not as creation of utility but creation of value. • Production essentially means transformation of one set of goods into another. • Utilities are created in three forms. • form utility • time utility • place utility • A good may be transformed by being physically changed (form utility) or being transformed to the place of use (place utility) or being kept in store till required (time utility). FACTORS OF PRODUCTION: • Productive resources required to produce a given product are called factors of production. • These productive resource may be raw materials or services of various categories of workers or of capitalists supplying capital or of entrepreneurs assembling the factors and organizing the work of production. • These are generally called “inputs”. • The term ‘factor’ is used for a class of productive elements the individual members of which are known as units of the factor. CLASSIFICATION OF FACTORS: • The factors of production were traditionally classified as land, labor, capital and organization (or enterprise). • The factors the production have important characteristics: • substitutability, complementarily and specificity. • Some factors can be substituted for others. • Some factors have to be used together. • Some factors are specific to be put to a particular use only.

5. LAND • MEANING AND IMPORTANCE OF LAND: • The term “land” has been given a specific meaning in Economics. • It does not mean soil as the ordinary speech but it is used in much wider sense. • Land stands for all natural resources which yield an income or which have exchange value. • It represents those natural resources which are useful and scarce, actually or potentially. PECULIARITIES OF LAND: • In contrast to the other factors of production land presents certain well marked peculiarities. • Land is a nature’s gift to man. • Land is fixed in quantity. It is said that it has no supply price. That is, price of land prevailing in the market cannot affect the supply. • Land is permanent. There are inherent properties of land. • Land lacks mobility in the geographical sense. • Finally, land provides infinite variation of degrees of fertility and situation so that no two pieces of land are exactly alike.

6. LABOUR • MEANING AND IMPORTANCE OF LAND: • In the ordinary speech the term “labour” means the mass of unskilled labour. But in economics it is used in a wider sense. • Any work whether manual or mental which is undertaken on a monetary consideration is called labour in economics. • Any work done for the sake of pleasure or love does not fall under labour in economic sense. PECULARITIES OF LABOUR: • Labour is manifestly different from the other factors of production. • It is a living thing and that makes all the difference. • Labour is not only a means of production but also an end of production. • There are certain characteristics of which distinguish labour from the rest of the factors of production. • Labour is inseparable from the labourer himself. • Labourer has to sell his labour in person. • Labour does not last. It is perishable. The labourer has, therefore, accept the wages offered to him. • Labour has a very weak bargaining power. • Changes in the price of labour react rather curiously on its supply. In the case of ordinary commodities, supply is directly proportionate to price i.e. the higher the price the greater the supply and vise-versa. • There can be no rapid adjustment of the supply of labour to demand.

7. FACTORS DETERMINING EFFICENCY OF LABOUR: • The following are some of the main factors which effect labour efficiency. • Racial qualities: labour efficiency largely depends on heredity and the racial stock to which the worker belongs. • Climate factors: a cool bracing climate conducive to hard work whereas climate is enervating. • Education: efficiency also depends on education both general and technical. • Personal qualities: a worker’s efficiency also depends upon his qualities (e.g. physique, mental alertness, intelligence, resource-fullness and initiative etc. • Industrial organization and equipment: the level of organization and the nature of equipment supplied to the workers too determine the efficiency. • Factory environment: cramped and ill ventilated factories situated in crowded and unsanitary surroundings are not conducive to efficiency. • Working hours: long hours lessen labour efficiency. • Fair and prompt payment: a well paid worker is generally contended and puts his best in the job. • Organization: an organized effort is always more efficient. • Social and political factor: social security schemes guaranteeing freedom from want and fear and which remove the dread of unemployment and are bound to invest labour with dignity and respect.

8. DIVISION OF LABOUR • MEANING AND TYPES: • Division of labour is an important characteristic of modern production. • There is hardly any producing unit of a respectable size which does not organize production on the basis of division of labour. It is associated with efficiency of production. • When making of article is split up into several processes and each processes is entrusted to a separate set of workers, it is called division of labour. • The division of labour is of the following main type: • Simple division labour: this means division of society into major occupants (e.g.) carpenters, blacksmith, weavers, etc. • Complex division labour: here each process or sub-process is carried out by separate group of people. This is division of labour proper. • Territorial division of labour: this form of division of labour refers to certain localities, cities, or towns specializing in the production of some commodity. This is also called as localization of industries.

9. CAPITAL • Capital refers to party of a man’s wealth which is used in producing further wealth or which yields an income. But capital is not a primary or original factor of production. It is a produced means of production. • The term “capital” is generally used for capital goods (e.g. plant and machinery, tools and accessories, stocks of raw materials, etc). They are used up in a single act of consumption. • Money spent on them are fully recovered when goods made with them are sold in the market. • Land is not regarded as capital because- • land is a free gift of nature but capital is man made . • Capital is perishable whereas land is indestructible and permanent. • Capital is mobile but land has no mobility. • The amount of capital can be increased but the quantity of land is fixed and limited. • Income from capital is uniform whereas rent of land varies. IMPORTANCE OF CAPITAL: • Capital plays a vital role in the modern productive system. • Production without capital is hard for us even to imagine. • Because of the strategic role in raising productivity, central position in the process of economic development. In fact, capital accumulation is the very core of economic development. • Another important economic role of capital formation is the creation of employment opportunities in the country. • It creates employment at two stages: • First, when capital is produced; some workers have to be employed to make capital goods like machinery, dams, factories, irrigation work, etc • Secondly more men have to be employed when capital has to be used for producing further goods.

10. CAPITAL FORMATION: • It means increasing the stock of real capital in the country. • In other words capital formation involves making of more capital goods such as machines, tools, factories, transport equipment, materials, electricity etc. which are all used for the future production of the goods. • For making additions to the stock or capital, savings and investment are essential. • If society consumes what it produced and saves nothing future productive capacity of the economy will diminish as the present capital equipment wears out. • Although saving is essential for capital formation in a monetary economy it may be directly and automatically result in the production of capital goods. • Saving must be invested in order to have capital goods. • In a modern economy, where savings and investment are done mainly by two different classes of people. There must be certain means of mechanisms whereby setting of the peoples are obtained and monopolized in order to given them to the businessmen or entrepreneurs to invest in capital. • CAPITAL FORMATION INVOLVES- • CREATION OF SAVINGS • MOBILISATION OF SAVINGS • INVESTMENT OF SAVINGS

11. ENTREPRENEUR • The role that the entrepreneur plays consists in co-ordinating and correlating the other factors of production. • He starts the work, organizes and supervises it. • He undertakes to remunerate all the factors of production : to pay rent to the landlord, interest on the capital and wages of labour and pays them in advance of the sale of goods. • The residue, if any is his. Generally nothing is left after making the necessary payments. But it is also possible that he may be lucky to make a handsome profit. • Whatever be the outcome, he must be prepared to take it. He thus takes the final responsibility of the business. • If he has anticipated the consumers wishes right and interprets them correctly he is amply rewarded. • This organizing and risk-taking or uncertainly bearing as it is sometimes called are the two functions of the modern entrepreneur. CHARACTERICTICS OF ENTREPRENEUR: • He is the innovator. • He is the means of introduction of new method of production. • He introduces the improvement in the old method. • It may discover the new material for final goods. • Innovation may take the form of techniques in the way of administration, finance, marketing or human relations.

12. FORMS OF ENTREPRENEURAL ORGANISATION: INDIVIDUAL ENTREPRENEUR: • The organizer of the one-man concept. • Invests his own capital and also borrow some. • He rents a shop and hires the service of an assistant necessary. • He himself makes purchases and personally attends to the sale. He is his own manager. • He initiates, organizes, directs the work and takes the entire risk. PARTNERSHIP: • Limitations of the one man business given to another form of business organization of partnership. • Two, three or more people combine, contribute capital and agree to share profits and bear looses in agreed proportions. JOINT STOCK COMPANY: • The joint stock company is undoubtedly the most important type of business organization. • It seems to remedy the disabilities of the partnership arising cut of small financial resources and limited business talent. CO-OPERATIVE ENTERPRISE: • As distinguished from the ordinary capitalist enterprise, there is the co-operative enterprise. • The workers are painfully aware of the fact that the entrepreneur takes away the lions’ share of profits. • Being conceived that they could themselves run the industry without the aid of entrepreneur the workers decide to take up the entrepreneurial work on themselves. • They contribute the capital themselves and borrow the rest. • They elect their own foremen, managers and employ some staff.

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